Airbnb stands to lose business in NYC after dropping lawsuit

Airbnb earlier this month dropped its 6-week-old lawsuit
against New York state attorney general Eric Schneiderman, New York City and NYC
mayor Bill de Blasio, in a move that could serve to constrain business in the
largest U.S. market for the peer-to-peer accommodations service.

Airbnb filed the suit in late October over a law that fines
hosts as much as $7,500 for posting listings that violate New York's short-term
rental laws. The company retracted its lawsuit, saying that it will work with
the city to prevent property owners from running de facto hotels with multiple
Airbnb listings. The company, which itself wouldn't be subject to such fines,
said it has removed more than 3,400 New York listings from its site that
appeared to be operated by hosts with multiple listings.

New York City, which enacted a law in 2010 barring landlords
from renting apartment units for fewer than 30 days at a time, will outline how
it plans to enforce the law in a public hearing on Dec. 19.

"We very much see this as a material step forward for
our hosts," Airbnb said in a statement. "We look forward to using
this as a basis to finding an approach that protects responsible New Yorkers
while cracking down on illegal hotels that remove permanent housing off the
market or create unsafe spaces."

Still, the agreement could substantially hurt business in
New York, Airbnb's largest U.S. market. According to Airdna, a company that
provides information to vacation-rental entrepreneurs and investors, there are
almost 49,000 active Airbnb rentals in the city, compared with more than 17,000
in Los Angeles and about 10,000 each in Chicago and San Francisco (Airdna says
Paris is Airbnb's largest worldwide market, with almost 69,000 listings).

More relevant, about 12% of New York's 35,000 active hosts
have multiple listings, compared with 14% of San Francisco's active hosts and
almost a fifth of Los Angeles hosts, according to Airdna.

By focusing on hosts with multiple listings, New York would
be staking "a reasonable middle ground for regulation that balances local
housing needs and hotel-industry fairness with the interests of travelers and
individual owners and hosts," said Douglas Quinby, vice president for
research at Phocuswright. "However, if they take a more aggressive stance
and go after individual owners or hosts who are simply not present during the
rental, then it could become a bigger issue for Airbnb and an unfortunate
development for both travelers and homeowners who benefit from the service."

The decision is the latest development in a relationship
between Airbnb and New York officials that has long been contentious. Public
officials have argued that the proliferation of Airbnb units has worsened the
city's housing shortage, while hotel lobbyists said Airbnb hosts operate at an
unfair advantage over hotel companies because their hosts aren't required to
pay occupancy taxes or abide by safety regulations for the hospitality
industry. Airbnb units account for about a third of New York's short-term
accommodation units inclusive of hotel rooms, compared with about 15% of Los
Angeles' and less than 10% of Chicago's.

Whether the decision will set a precedent for Airbnb's
strategy with other contentious cities such as San Francisco, Berlin and
Barcelona is unclear. Airbnb earlier this year sued its home city of San
Francisco over what the company said are laws that force prospective hosts into
a Byzantine and onerous registration process.

Still, Airbnb head of global policy and public affairs Chris
Lehane said in a presentation at last month's Airbnb Open conference in Los
Angeles that it has agreements with more than 200 cities, including Los
Angeles, Philadelphia and Washington, to collect occupancy taxes on behalf of
its hosts.

"The vast majority of cities understand where the world
is going and are interested and engaged in working with us," said Lehane. "Part
of our responsibility is to help cities come up with these solutions."